Wednesday, April 22, 2009

The recent market downturn and financial crisis has seen many argue that the private sector cannot be trusted to manage things like pensions and the government is a far better steward of these long-term commitments. The state of Social Security, which has gone unaddressed despite years – actually decades – of warnings from the program's Trustees, speaks against this.

But here's another interesting example documented by the Financial Times and Megan McArdle comparing the funding status of private sector defined benefit pension plans to pensions for public sector employees.

McArdle points out:

According to the Pension Benefit Guaranty Corporation, which regulates and insures pensions, the total deficit in private plans covering about 34 million workers was a little over $10 billion as of September 2008. That's almost certainly multiplied quite a bit since then. But the current underfunding in public plans, which cover about 22 million workers, seems to be something north of a trillion dollars.

In other words, private plans are underfunded by around $295 per employee. Not a good thing, but could be worse. A lot worse, as it turns out, if you compare to public sector plans where per employee underfunding amounts to around $45,500.

About me

I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.